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SCHOOL BOND: Queries answered

I appreciate the friendly questions from Mr. Rose in Saturdays Whidbey News-Times and I am glad to provide the answers he seeks. appreciate the friendly questions from Mr. Rose in Saturdays Whidbey News-Times and I am glad to provide the answers he seeks.

1) The bond underwriter for the school district is Jack Eaton, managing director with Banc of America Securities. He was selected by a committee of Oak Harbor bankers and businessmen and has worked with the district since 1996.

2) Moodys assigned Oak Harbor School District an A2 rating - the highest given to districts our size - when the district recently refinanced its 1996 bond issue (saving over $200,000 in debt service costs). However, Oak Harbor expects to participate in the Washington state bond guarantee and will therefore benefit from the states Aa1 rating.

3) Interest rates on the Oak Harbor school bonds are estimated at 3.45 percent to 6.25 percent (current rates plus 1 percent) in the current plan. Bonds with a shorter maturity have lower rate. Bonds with a longer maturity have a higher rate. The 1.00 percent cushion is included in the plan estimates in order to assure that we can meet or better the tax rate goals we have set given uncertainty about actual rates at the time of sale.

4) Yes, there are buyers of tax-free school bonds at the current low interest rates. The district recently sold $7,000,000 in refinancing bonds at rates just above 3.0 percent. Other school districts have been successfully selling larger construction bonds at these rates. We have included the 1.00 percent cushion in case market conditions change.

5) Property taxes will not increase until 2004 if the election passes in March of 2003. We are confident we will be able to sell the bonds before that time.

Finally, lets look at your example of a $200,000 home that would pay an additional $180/year for the school bond. I assume someone with that type of home would itemize deductions for mortgage interest and property taxes on their federal income tax return. This would reduce the net cost to perhaps $120 to $150 per year. You could invest $2,800 in 16-year school bonds at 5.25 percent interest and receive tax-free interest of $147.00 per year (worth over $200 in taxable income). You would do much more than break even, since you would also have a 260,000 square foot high school with a performing arts center and sports facility and many useful years left in it.

Please note that this only accounts for the increase over current bond tax rates. Although the total tax rate will stay the same, $0.90 higher than the current rate of $1.41 per thousand, the proportion of that rate used to repay the high school bonds increases when the Hillcrest and the 1996 bonds are paid off.

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